German Stocks’ Premium Has Investors Demanding Proof of Profits

German stock valuations have raced well beyond historic levels, leaving some investors saying that massive stimulus spending needs to show up in company profits before the record-setting rally can gain fresh momentum.

Frankfurt’s DAX Index has soared 21% this year after Chancellor Friedrich Merz’s government promised hundreds of billions of euros in infrastructure and defense outlays. The benchmark now trades at near 16 times forward earnings, above the average of 13 times over the past decade and near the highest premium to European peers since 2009.

“I am wary of the re-rating that has happened across Germany,” said Will McIntosh-Whyte ...